Credit-card Fraud Incident Hits Home

Ian Katz Commentary

Who gets stuck with the bill when your credit card is used fraudulently? The merchant, or the bank that issued the card? Do police investigate the crime?

Last week I used a personal experience as motivation to answer those questions.

On the morning of Sunday, Nov. 5, someone walked into a Golfsmith store in Scarsdale, N.Y., and bought a $1,395.86 set of Callaway Fusion Wide Sole golf clubs -- apparently with a counterfeit copy of my MasterCard.

The irony of this is rich, not only because I have never been to Scarsdale, but also because I harbor an antipathy toward golf, and I was playing tennis at the time of the transaction.

That day my account was also charged $400 at a Linens 'n Things store about 1,000 feet from Golfsmith. The previous day I was hit with a $75.13 charge at Wine Stop & Spirits in Scarsdale and $500 at Nordstrom in White Plains, five miles away.

Credit-card fraud is by far the most common form of identity theft. It has become a sad but true fact of life and a cost of doing business for merchants.

Citibank, the card issuer, phoned me that Sunday to ask if the charges were mine, though it mentioned only two of the four transactions. By checking with me shortly after the purchases were made, the bank's fraud department likely prevented additional thievery.

A Citibank customer service rep and a Golfsmith employee told me that a card was used in the transactions charged to my account. Since I never lost my card, a counterfeit apparently was made.

The counterfeiting of cards is a growing problem and not as difficult to pull off as you might think. Blank cards can be bought on the Internet for $2 apiece, and machines that write and read the magnetic strips cost about $700.

"The banks are quite concerned about counterfeits," said Dan Clements, CEO of CardCops Inc., a California company that sells services to prevent card fraud and identity theft. CardCops scours Internet chat rooms where thieves buy and sell stolen card information, such as the data stored in the magnetic strip on the back of cards. It's quite possible that an employee of a business where I shopped took information from my card and sold it online.

Consumers are legally liable for $50 from each unauthorized transaction, but usually pay nothing. (Of course, we all pay for fraud since banks and merchants pass on their costs to us.)

If the purchase was made in person with a card, as most are, the issuing bank is usually stuck with the bill -- though this is sometimes disputed by the bank if the retailer did not check the customer's identification or compare the signature to the one on the card. If the transaction was done in a "card not present" situation, such as via the Internet, phone or mail, the merchant pays.

Police departments, inundated with white-collar crime, investigate only the most egregious cases or ones that might involve a sophisticated ring. An employee at one of the merchants where my card was used told me that it's especially difficult to get law enforcement involved if the fraud occurred in multiple cities or states.

To improve their prevention systems, retailers and card-issuing banks need to investigate even the incidents they know police will not pursue. "There is no benefit to Nordstrom not to investigate to the fullest extent we can," said Deniz Anders, a spokeswoman for the department store chain.

Citibank said it seeks police investigations on a case-by-case basis and doesn't use a minimum monetary threshold. "We maintain close relationships with law enforcement, so we have a fairly good feel for what cases are likely to receive their attention," said Samuel Wang, a spokesman for parent company Citigroup. "One question that arises, he said, is whether "there is potential for prosecution."

Clements, of CardCops, said banks are most interested in finding out how the card information was stolen.

In my case, this would seem an impossible task. But by comparing the fraud on my card with other cases that occurred around the same time or in the same geographic area, investigators might be able to find patterns.

As for those Callaway irons, whoever bought them probably isn't a Tiger Woods wannabe and almost certainly doesn't have them anymore. A Golfsmith employee told me that through serial numbers, the company has tracked down fraudulently purchased clubs on eBay.